Regulatory: Considering energy regulations—Natural gas

One of the most significant economic and geopolitical developments of the past decade has been the discovery of large quantities of recoverable natural gas in the United States. Its attractiveness from an environmental perspective and its declining relative price have made natural gas the fuel of choice for many industrial applications, including for new electric generating plants with a 50-year life expectancy. Future decisions concerning the appropriate regulation of natural gas must take into account its unique advantages as a fuel, the problems presented by its method of production and the location of newly discovered supplies in populated areas (e.g., Pennsylvania and New York).

Natural gas currently trails only coal as a fuel for U.S. electric power plants. Its value as a fuel stems from several factors. It produces approximately one-half the greenhouse gas emissions of coal, and the operational characteristics of gas-fired turbines make them the preferred choice for plants designed to generate power during times of peak demand. As increased supplies have reached market, the price of natural gas has declined recently in both relative and absolute terms, leading to the substitution of natural gas for coal as the fuel of choice for new generating facilities. On the other hand, the low price of natural gas has created economic disincentives to the development of commercially viable alternative technologies (wind and solar) that might further diminish the country’s reliance on coal, with its high carbon emissions, as our baseload power source.

The availability of large quantities of natural gas also has substantial national security implications. As discussed in Daniel Yergin’s “The Quest”, since the first Arab oil embargo in 1973 demonstrated the country’s vulnerability, successive administrations have worked to reduce the country’s relative dependence on oil as a fuel. They have encouraged energy efficiency, diversification of the economy’s fuel mix and development of multiple sources of supply from friendly countries. The availability of a domestic natural gas supply sufficient to meet the country’s needs for decades will reduce our need to import energy from foreign countries and provide the U.S. with a greater measure of independence in this critical area.

The increase in confirmed natural gas reserves results from technological developments that have made it possible for drillers to recover large quantities of gas through hydraulic fracturing of shale formations. In this “fracking” process, water, sand and chemicals are pumped into the formation at high pressure, fracturing the rock and releasing the embedded natural gas that may then flow to a well for extraction. This extraction method creates several problems that must be addressed:

The driller must dispose appropriately of the large quantities of water that flow back to the surface.

Although the fracking fluid typically is injected into rock formations well below the depth from which communities draw their drinking water, there is concern about whether the chemicals used in production may contaminate the aquifer and present a human health threat.

The construction and operation of wells, and the location of gathering and collection pipelines necessary to transport the natural gas, have adverse effects on neighboring communities and may make siting new production facilities difficult.

Policy objections have been raised that the development of any new carbon-based fuel supply will delay the long-term transition to alternative sources, even though the substitution of natural gas for coal will reduce carbon emissions in the interim.

Future regulatory decisions should encourage the substitution of natural gas for coal, develop better techniques for understanding and addressing the potential health risks of fracking and provide a common template by which the U.S. may deal with the local impacts of increased production, without choking off development of this important energy source.

John Cooney

John F. Cooney is a partner in the Washington, D.C., office of Venable.